Ryotaro Takahashi, Keio University
This study examines the policy decision process of the Ministry of Finance (MOF), which faced a dilemma between fiscal consolidation and the expansion of domestic demand from 1976 to 1979, as well as clarifies the structure of Japanese debt and how today’s intergovernmental fiscal relationship was formed. The Japanese government’s debt outstanding is the largest among OECD countries. The trigger for this was the issue of deficit bonds in 1975, which changed the policy of the MOF from "high welfare, high burden" to "issue no more than 30% public bonds." This was a change from a welfare maintenance policy through raising taxes and social insurance premium rates to one that allows the issue of a certain level of public bonds. Meanwhile, the current account surplus of Japan has risen since 1977 and the United States has called on Japan to expand domestic demand to correct it. In keeping with the dilemma between fiscal discipline and the pressure to expand domestic demand, the MOF focused on "temporality" to expand such demand within the 30% rule regarding issuing bonds. As concrete measures, it adopted a public investment strategy and created a 15-month budget in cooperation with local finance institutions. This fiscal policy that imposed a temporary burden on central and local finance was expected to be sound by introducing the general consumption tax in 1979. However, the introduction of the consumption tax was politically overturned. As a result, the intergovernmental fiscal relationship and budget deficit structure that should have been only a "temporary" system came to exist. To investigate the above, this research uses data from Japan and the United States. Specifically, it adopts a multi-archival approach that uses the MOF’s "Finance Ministry Dictation Record" and various documents from the Carter Center ’s archives.
No extended abstract or paper available
Presented in Session 47. Facts and Fictions: Expert Ideas in the Politics of Public Finance